SALEM -- Lawmakers adjourned the 2017 session Friday having averted a budget disaster, but acknowledged as they headed home that relationships have frayed and this year's wins could be jeopardized by a looming budget gap.

Democrats achieved many of their most progressive policy goals, but they failed to find votes to reform Oregon's tax system and make a serious dent in public pension costs, leaving the toughest decisions to future sessions.

Democratic lawmakers and public employee unions had hoped they could achieve a sea change in the way Oregon taxes businesses, to generate up to $2 billion in new revenue to lift education budgets and head off chronic shortfalls. House Speaker Tina Kotek, D-Portland, upped the ante in May, insisting lawmakers first pass such a tax plan before turning attention to other legislation.

The strategy frustrated lawmakers from both parties and drew a rebuke from Gov. Kate Brown. In the end, Kotek's play failed. Weeks before the July 10 deadline to wrap up work, the governor and top legislative Democrats acknowledged they lacked the support to overhaul corporate taxes.

With the corporate tax rewrite dead, Democratic leaders unleashed a handful of policy priorities that angered many Republicans and pleased supporters including labor, gun control proponents, women and immigrant rights groups. They'd held the bills back early in the session to maintain peace so lawmakers could pursue transportation, cost-cutting and revenue-raising priorities.

Senate Minority Leader Ted Ferrioli, R-John Day, said those tactics contributed to a breakdown in relationships, visible in the Senate's decision to adjourn hours before the House on Friday.

"There was a problem," Ferrioli said, as he left the Capitol on Friday afternoon. "Senate Bills didn't move quickly enough. There was a sense bills were being held hostage."

Senate President Peter Courtney, D-Salem, pictured on Friday, July 7, 2017, the day the Legislature adjourned its annual session. Gordon Friedman/Staff

Ferrioli suggested that the Senate's decision to leave the Capitol early reflected more behind-the-scenes tension between Senate President Peter Courtney, D-Salem, and Kotek.

Courtney declined to speak with reporters or answer questions emailed to him on Friday, instead issuing a statement that "things have been said and done that will leave wounds." He did not elaborate on what he meant by that comment.

However, Courtney added that "In the last few days, we put that aside and came together. We did some good things for Oregon."

The final days of lawmaking in the House were punctuated by debates between members of the opposing parties that turned fierce and emotional. To the chagrin of Republicans, Democrats pushed through bills to reduce prison sentences for drug crimes and require health insurance plans to pay for reproductive services, including abortion.

House Minority Leader Mike McLane, R-Powell Butte, a member of the Legislature since 2011, said this year was the "most political, partisan and divisive session I've ever been through."

He lamented that Democrats didn't allow for much budget-tightening, saying this was a session of missed opportunities to save money and Democrats' "faked commitments" to fiscal prudence.

McLane said Democrats -- who hold majorities in the House and Senate but lack the three-fifths needed to increase taxes without Republican support -- repeated a refrain throughout the session: "Give us more money."

RENTER HELP SPUTTERED

Though Democrats achieved success on a range of progressive bills in the session's waning days, a bill to allow local rent controls and new restrictions on tenant evictions didn't make it into law.

That bill, House Bill 2004, was a priority for Kotek. It narrowly passed the House in April, only to have rent control language stripped out in the Senate. The watered-down bill died because it had no support from Senate Republicans. Democrats Rod Monroe of Portland, and Betsy Johnson of Scappoose also refused to back it.

"Tenants needed those protections," Kotek said. "We'll be back on that issue."

Lawmakers' central achievement this year was passing a $5.3 billion bill to upgrade roads and bridges and expand public transit. The money will be raised over the next decade by increasing gas taxes and vehicle registration fees, taxing the sale of new bikes and cars, and putting tolls on Portland freeways. A 0.1 percent payroll tax will provide more than $1 billion for transit projects, many in rural areas.

"You're going to see a lot of local projects," said Kotek.

The bill will send half the money in Oregon's highway fund to cities and counties for road maintenance and expansions. That's a boon for local governments. Instead of forcing voters to decide on a local gas tax increase – as Portland did last year – lawmakers took the tough vote themselves. Municipalities will reap the rewards of better roads and public transit.

ROAD PLAN WIN TOOK GRIT, COMPROMISE

But reaching that vote was far from certain for almost the entire 5-month-long legislative session. Transportation negotiations were underway when Brown took office in 2015. But a group of eight bipartisan legislative leaders couldn't hammer out a deal.

Rep. Cliff Bentz, R-Ontario, and Rep. Caddy McKeown, D-Coos Bay, pictured on the House floor. The two were architects of this year's $5.3 billion transportation bill. Stephanie Yao Long

This year, talks restarted with the creation of a special 14-member committee that toured the state and held dozens of public hearings. That committee was headed by Sens. Lee Beyer, D-Springfield, and Brian Boquist, R-Dallas, and Reps. Caddy McKeown, D-Coos Bay, and Cliff Bentz, R-Ontario -- a bipartisan, bicameral quartet dubbed the Fab Four. Many credit their work ethic and willingness to compromise as the reason the transportation plan came to fruition.

Their first proposal would have raised $8 billion -- too much of a tax hike for Republican lawmakers and key interest groups to stomach. So they slimmed down their plan to its $5.3 billion form, staving off threats that interest groups would seek to overturn the plan with a ballot referendum.

The deal passed comfortably with bipartisan support in the House and Senatebut only after Democrats conceded to Republican demands that a state biofuels law be modified to limit its effect on the price of fuel.

House Republican Leader Mike McLane, R-Powell Butte, said the transportation plan was "one of the only successes" for his caucus this year. That's because House Republicans, with Bentz as their chief negotiator, were able to secure the low-carbon fuels deal. The agreement resulted in changes Republicans had sought when transportation negotiations sputtered in 2015.

Oregonians will notice the plan's effect in January as gas taxes rise 4 cents and other taxes kick in. Portland's highways will change too, but not as quickly, as projects funded by the transportation bill break ground in the coming years. There are planned expansions to Interstate 5 through the Rose Quarter, new lanes and a new Abernethy Bridge on Interstate 205, and lane additions to Oregon 217.

BUDGET FEARS OVERBLOWN

On the budget, lawmakers managed to avert major cuts they had threatened might be necessary, including kicking 350,000 people of Medicaid.

They bridged the gulf between available state revenues and the cost of keeping programs by raising hospital taxes and imposing a new tax on health plans to generate $550 million. They generated relatively little outcry despite the magnitude of the taxes. Legislative Democrats and the governor described that as a key success in the session.

A bill to trim state government costs by roughly $200 million over the next two years also helped. It barely passed, with only one Republican supporting it and several Democrats in the House voting "no."

The governor said lawmakers demonstrated they could take difficult votes. She said the cost-cutting bill in particular, though relatively small, could lay the groundwork for future austerity measures and new revenue.

"There were some really difficult votes taken on both sides of the aisle, and I want to applaud their courage and their willingness to put politics aside and do the right thing for Oregonians," Brown said.

Still, several Republican representatives have already launched an effort to refer part of the health care tax to voters in 2018 in hopes voters will kill it. If those lawmakers' drive is successful, the repeal would re-open a hole in the budget.

WHY CORPORATE TAX REFORM TANKED

Sen. Mark Hass, the Beaverton Democrat who led the effort to pass a so-called gross receipts tax on businesses' sales, said in the end Democrats simply couldn't come up with the one Republican vote in the Senate necessary to pass the plan. With the proposal doomed to die in the Senate, any House Republicans who might have voted for it would have taken a risk without any upside.

Business groups and Republicans had insisted a corporate tax hike be accompanied by government cost-cutting and reforms to whittle down the state's public pension deficit. But lawmakers' proposals on those fronts lacked the diligence poured into the tax plan, Hass said.

"There was just nobody doing that, putting in the elbow grease," Hass said. The huge transportation proposal also diverted attention, he said. "It was like trying to eat a big cheeseburger and pizza for lunch ... the belly just couldn't digest it."

House Speaker Tina Kotek, D-Portland, pictured on Friday, July 7, 2017, the day the Legislature adjourned its annual session. Gordon Friedman/Staff

Kotek said she's still convinced the gross receipts tax is a good strategy. "We just have to build more support for it," Kotek said, adding that lawmakers and other advocates will spend the next two years making the case.

The speaker, who supported the union-backed Measure 97 corporate tax that failed last year, faulted business groups for failing to come forward with proposals to increase their taxes until the end of the session.

"Hopefully we're done with the games and we're going to have a real conversation," Kotek said.

WHAT'S NEXT

Oregon's teachers union has already filed two initiatives for the November 2018 ballot, one to create a corporate gross receipts tax and a second that would make it easier for the Legislature to raise taxes to fund education. That won't smooth tensions between Democrats and Republicans, and having the union shape a gross receipts tax is less likely than Hass' effort to reel in the widespread support needed to get a tax change across the finish line.

Brown said Friday that she plans to bring proposals to tackle the public pension deficit before lawmakers in the 2018 short session. She also suggested labor leaders and the business community are already more willing to discuss a corporate tax plan than they were at the start of the session.

"We will begin a new round of conversations with leaders," Brown said on Friday. "I'll probably give folks about 48 hours rest. But we're not going to rest for too long."

But in failing to reach tax reform this year, Brown, Courtney and Kotek have set up the newly balanced state budget for turbulent times ahead if Oregon's roaring economy slows.

While prospects of a special session to pass tax reform were high just months ago, legislative leaders now say they have no interest in bringing lawmakers back to the Capitol for extra innings.

"I'm not interested in a special session," Kotek said. "I'm looking for a vacation right now."

Brown said she sees no need to call lawmakers back. At least, not yet.

Federal funding cuts or a repeal of Obamacare could disrupt the state's course, she said. "It all depends on what happens at the federal level, frankly."